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Caudill v. Prophet21
Citation Caudill Seed & Warehouse Co. v. Prophet 21, Inc., 123 F.Supp.2d 826 (E.D. Pa. 2000) (full-text), on reconsideration, 126 F.Supp.2d 937 (E.D. Pa. 2001) (full-text). Trial Court Proceedings Senior District Judge Lowell Reed examined in detail the scope of U.C.C. §2-719, as set out in 13 Pa.C.S.A. § 2719, ruled that a software licensee stated a valid claim by saying in its complaint that (a) the software didn't work, (b) the developer didn't fix it, and © it had to obtain working software elsewhere. He ruled that the limitation of liability and exclusive remedy clauses in the license were inapplicable to the alleged facts. The limitation of liability clause in the license agreement is standard, providing that Prophet 21 will not be liable for: The warranty clause provides Section § 2719(b) states, “Where circumstances cause an exclusive or limited remedy to fail of its essential purpose, remedy may be had as provided in this title.” The comment to this section says, “Where an apparently fair and reasonable clause because of circumstances fails in its purpose or operates to deprive either party of the substantial value of its bargain, it must give way to the general remedy provisions of this Article.” In refusing to dismiss the complaint, the court held The court then turned to Caudill's contention “that because the only remedy available in the agreement has failed in its essential purpose, the damages disclaimer fails as well and Caudill is entitled to the full range of damages available under the U.C.C., including compensatory and consequential damages.” The parties have stumbled into a legal quagmire that has divided courts across the nation . . . whether the failure of an exclusive remedy referenced in a limitation on liability clause should result in the mooting of the remaining limitations of liability, including damage disclaimers. In other words, is a limitation on liability clause a house of cards that collapses when the exclusive remedy is removed?Id. at 830. There being no Pennsylvania court decisions directly on this question, Judge Reed then examined two Third Circuit cases that interpreted the identical language in New Jersey and Wisconsin statutes. The former was the celebrated Chatlos Systems, Inc. v. National Cash Register Corp.,''635 F.2d 1081 (3d Cir. 1980) (full-text). which predicted that New Jersey would hold “that failure of an exclusive remedy provision did not also invalidate a damage disclaimer similar to the one at issue in this case.” The latter was ''Ragen Corp. v. Kearney & Trecker Corp.,''912 F.2d 619 (3d Cir. 1990) (full-text).also involving computer hardware, and predicted that Wisconsin “would hold that the failure of the exclusive remedy rendered the damage disclaimer inoperative.” Noting that federal district courts in the Third Circuit have generally favored the ''Chatlos approach, Judge Reed strongly disagreed: Predicting that the Supreme Court of Pennsylvania would reach the same conclusion, he wrote that “because I conclude that plaintiff Caudill has adequately stated a claim that defendant's conduct resulted in the failure of the essential purpose of the software licensing agreement, Caudill may, at this stage, seek the full range of damages available under the UCC, including consequential and incidental damages.” The Court dismissed two counts, one for breach of implied warranty because it directly contravened that limitation of liability clause, and a second for fraud, which he ruled was just the contract counts in different language. Motion for Reconsideration On the motion for reconsideration, Judge Reed again ruled against the defendant on breach of express warranty. Prophet 21 claimed that because Caudill alleged that the software did not work in conformity with Prophet 21's “representations,” and did not use the word “Documentation” in its pleading, the count should be dismissed. Not so said the court: “The word ‘representations' is inclusive of any ‘documentation’ provided by Prophet 212 to the plaintiff, including technical manuals, online documents, and other documents delivered with the software.” Similarly, defendant argued that because plaintiff's claim for damages beyond the limitation of liability in the agreement did not “specifically allege that the exclusive remedy clause ‘failed in its essential purpose,”’ plaintiff's only remedy was the repair or replacement provision of the license. Again, “defendants demand far more than the Federal Rules of Civil Procedure do.” However, in view of a recent Third Circuit decision applying Pennsylvania law, Judge Reed dismissed a “claim for the breach of duty of good faith and fair dealing.” References Category:Contract Category:Case Category:Case-U.S.-Federal Category:Case-U.S.-Contract Category:2001